Gordon Borrell, among the best known of digital advertising analysts, was predicting two years ago that the newspaper business would stabilize, with some companies growing their digital revenues 30 percent a year.
Now he has reversed course, predicting another boom year for local digital advertising in 2015, but with newspapers and other legacy media badly trailing “pure plays” like Trulia, Angie’s List and Yelp in capturing a share of that.
Based on surveys of local advertiser plans, Borrell said in September:
They’ve changed their story on me…The storm for newspapers isn’t over, though I’ve been predicting for two years that things are about to get calmer. Turns out, the shift to digital is accelerating.
The future isn’t bright for print and broadcast media, I’m sad to say. While I believe that they have a place in today’s media carnival, I also think they’re beginning to look more like an old-time carousel amid the more thrilling anti-gravity rides and looping roller-coasters. Don’t shoot the messenger. We’re just reporting where the screams of excitement are coming from.
In a more detailed January forecast, Borrell says local digital ad spend grew 40 percent in 2014 and will increase another 42 percent this year. Newspaper digital ad revenues will improve some, but with continued print declines, total newspaper industry ad revenues will fall by an estimated 4.8 percent.
When I spoke with Borrell in October 2012, he was bullish in part because he expected print revenues to stabilize or grow over the next five years, especially at smaller papers. That didn’t happen with print declines approaching 10 percent year after year.
Why the reversal, I asked in a phone interview?
“First, we got the forecast wrong,” Borrell said. “We usually have the right direction but may be off in the timing. But this time we were spectacularly wrong and that hurt,” because reliable analysis is the company’s main product.
He added that the forecast was “reflecting some of the optimism out there…about a third of our clients are newspapers.” Also, over the last two years local businesses began swinging faster to targeted digital options than they had predicted in the surveys that are the basis of the forecast.
Borrell said that he “faults the industry too…They got a little distracted by digital, neglecting print, (still) the big engine that fuels revenue.”
Editors and reporters (Borrell was one himself before turning to consulting) may consider another of his findings especially disappointing: In the local marketplace strong digital news content, even if it grows audience, does not carry the day with advertisers.
Rather they embrace targeted sites that will find real estate shoppers, car buyers and others actively searching for a specific product or service. And the big national players like Google and Facebook are killers at gathering data, then targeting ads to user interests, as local publishers remain novices at mining data.
Long an advocate of a dedicated digital sales force, Borrell told me, “You want an ad rep who understands what (the client) is trying to get out of the business…It’s truly a consultative role and has nothing to do with content.”
In fact in the current climate, some of the legacy companies successfully investing in new digital entities, Borrell said, “have decided their longtime respected media brands were more baggage than asset” and have picked names unrelated to “the big-time media parent.”
Borrell’s take on the industry is not entirely negative. He credits companies like The New York Times, The Washington Post and McClatchy newspapers for getting a quarter to a third of ad revenues from digital (though that reflects print declines as much as digital growth).
A low rate of growth is not always a bad sign, he added. For instance McClatchy’s digital ad revenue was roughly flat in 2014, Borrell said, but that reflects earlier success “saturating” their local ad customers with digital options.
Borrell also thinks low profits can indicate progress — if a company is taking what it still earns from print and plowing the cash into digital investments rather than the bottom line and dividends.
His January report describes three types of legacy strategies:
Traditional media companies stuck in the analog world, selling a little digital stuff because it’s easy, but not really believing there’s good money in it; traditional media companies that are more excited about the prospects but still reticent (or unable) to invest more in order to grow quickly; and traditional media companies that have seen the light and are determined to grow again, investing heavily in digital by hiring people or
In our interview, Borrell said that he puts about half the companies in the first category and a quarter in each of the other two. But he also expects those in the middle either to revert to being “dabblers” or to step up their pace of digital acquisition and investment.
Still, he cautions that the thousands of Internet pure plays will be formidable competitors in any case. “They have gobbled up share at the local level,” he writes in the report. “In 2015, these independent companies will account for nearly three-fourths of all digital advertising, elbowing out local-media competitors who have tried for two decades to use their existing sales forces to also sell digital advertising.”
Borrell’s forecast comes on the eve of fourth quarter and full-year reports from legacy companies, along with updated 2015 forecasts. Gannett and New York Times will kick off the earnings season Tuesday.
Note: Borrell’s forecast is of locally-placed digital advertising. So it does not count some of the national advertising in regional and community papers and does not measure national campaigns that are the backbone of the ad base for the New York Times, Wall Street Journal and USA Today. The full January forecast can be purchased from Borrell Associates.